JUDGMENT
G. Sivarajan, J.
1. These three income-tax referred cases arise from R. A. Nos. 6 to 8 of 1987 of the Agricultural Income-tax Appellate Tribunal
(Additional Bench ), Ernakulam. The assessment years concerned are 1974-
75 and 1976-77. R. A. No. 6 of 1987 relates to the assessment year 1974-
75, arising from the original assessment order. R.A. No. 7 of 1987 relates
to the assessment year 1974-75 against the reassessment order. Referred
Application No. 8 of 1987 relates to the assessment year 1976-77. The
following questions of law for the assessment year 1974-75 are referred
to this court under Section 60 of the Kerala Agricultural Income-tax Act,
1950 ;
“1. Whether, on the facts and in the circumstances of the case, the Tribunal is legally right in holding that the expenditure incurred in the Board meeting of the company and filing fee paid to the Registrar of Companies, being expenditure incurred under the requirements of company law, is not an allowable expenditure under Section 5(j) of the Agricultural Income-tax Act, 1950 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is legally right in the interpretation of Rule 8G of the Agricultural Income-tax Rules in holding that the rubber rehabilitation allowance is allowable only on the quantity of centrifuged rubber latex, after excluding process loss and not on the quantity of actual rubber latex extracted from the rubber trees ?”
2. For the assessment year 1976-77, the following questions were referred ;
” 1, Whether, on the facts and in the circumstances of the case, the Tribunal is legally right in the interpretation of Rule 8G of the Agricultural Income-tax Rules in holding that the rubber rehabilitation allowance is allowable only on the quantity of centrifuged rubber latex, after excluding process loss and not on the quantity of actual rubber latex extracted from the rubber tree ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is legally right in holding that the radio, kept in the rubber estate as a measure of staff welfare in the labour and staff clubs is not essentially connected with the earning of agricultural income and upholding the disallowance of depreciation claimed on such radio ?”
3. The applicant is a limited company engaged in agricultural operations in rubber. For the assessment years 1974-75 and 1976-77, the assessee claimed various deductions in the computation of agricultural income under the Act. The assessing authority disallowed certain items of expenditure as according to him, those items of expenditure were not integrally
connected with the earning of agricultural income and, therefore, they cannot be allowed under the provisions of the Act, The Deputy Commissioner (Appeals) concurred with the findings of the Assessing Officer. Aggrieved by the order of the Deputy Commissioner (Appeals), the assessee filed a second appeal before the Agricultural Income-tax Appellate Tribunal, Trivandrum.
4. Various items of disallowance are :
(1) Board meeting expenses ;
(2) Cost of court fee stamps ;
(3) Filing fees paid to the Registrar of Companies ; and
(4) Rehabilitation allowance.
5. The Appellate Tribunal also sustained disallowance of the above items.
6. Now, coming io the assessment year 1974-75, we first take the question in R. A. No. 7 of 1987 :
” Whether, on the facts and in the circumstances of the case, the Tribunal is legally right in holding that on a reconsideration of the same set of facts which were available at the time of making the original assessment under Section 18(3), the reopening of the assessment under Section 35 is valid ?”
7. The assessing authority after completion of the original assessment for 1974-75 found that a sum of Rs. 1,514 being the inadmissible expenses and Rs. 6,238 being miscellaneous expenses had escaped assessment. He, therefore, initiated action under Section 35 of the Act read with Section 18(3) and assessed to tax the escaped income. The validity of this order was challenged before the Deputy Commissioner (Appeals) as also before the Tribunal. Both the appellate authorities upheld the order holding that the reassessment is valid.
8. The relevant portion of Section 35 of the Act reads as follows : “If for any reason agricultural income chargeable to tax under this Act has escaped assessment, . . .” The case of the applicant is that all the materials and details were available even at the time of the original assessment and that the present attempt is only a mere change of opinion on the part of the assessing authority, which is not permissible under the Act.
9. It can be seen from the provisions of Section 35 of the Act which have been extracted above that if it is found that income has escaped assessment for any reason without any limitation, the Assessing Officer
can reopen the assessment provided the other conditions oi’ Section 35 are satisfied. It has been so held by this court while interpreting the provisions of Section 19 of the Kerala General Sales Tax Act, which is in pari materia with the provisions of Section 35 of the Act and held that if income had escaped assessment, whatsoever, even if there is a case of mere change of opinion, there is no fetter in Section 19 of the Kerala General Sales Tax Act disabling the assessing authority to reassess the escaped turnover. A mere change of opinion on the same materials will be sufficient to reopen the assessment, vide Deputy CST v. T. P. Ellas [1993] 90 STC 25 ; [1991] 1 KLT 395. Respectfully following the said decision, we hold that the Tribunal was right in holding that the reopening of the assessment in the instant case is valid and justifiable. We answer the question accordingly.
10. Coming to question No. 1 in R. A. No. (i of 1987 regarding the disallowance of expenditure incurred in the board meeting of the company and the filing fees paid to the Registrar of Companies, which are expenses incurred under the requirements of the company law, the question is squarely covered by the decision of the highest court in H.S. Sidvahantappa v. Commr. of Agrl. I T. [1993] 204 ITR 349. In that decision, their Lordships of the Supreme Court considered the provisions of Section 5(j) of the Agricultural Income-tax Act and held that the principles that apply to the interpretation of Section 37 of the Income-tax Act, 1961, will apply to Section 5(j) of the Kerala Act also. In that case, the Supreme Court was concerned with the question as to whether the fees paid to auditors has been correctly disallowed in computing the agricultural income of the assessee. Their Lordships held that the fact that Section 5(j) of the Act uses the words “for the purposes of deriving agricultural income”, pressed by learned counsel for the Revenue, does not, in our view, mean anything very different from the words used in Section 37 of the Income-tax Act. Their Lordships also referred to an earlier decision of this court in Sunil Krishna Paul v. CIT [1969] 71 ITR 618, CIT v. Nilambur Rubber Co. Ltd., [1969] 71 ITR 686 (Ker). That judgment states that it was not disputed that expenditure incurred for maintaining accounts and getting them audited was a permissible deduction under the said Section 5(j) but it was submitted that the expenditure incurred for preparing the return of income and statements to be filed before the Income-tax Officer and the remuneration paid to counsel for conducting the case before the income-tax authorities was not an allowable deduction, and this was upheld. But the Supreme Court observed that there was no real distinction between the expenditure incurred for the purpose of maintaining the accounts and getting them audited and for the purpose of preparing a
return of income under the said Act. The Supreme Court accordingly, held that the professional fee paid to an auditor for the purpose also falls under Section 5(j).
11. Now, coming to the facts of the present case, the Tribunal found that ; “it is true that this expenditure is incurred in the normal course of running the company” and that this expenditure is concerned with company law requirement and management of the company rather than the earning of agricultural income. Respectfully following the ratio of the decision of the Supreme Court mentioned above, we hold that the claim for deduction of the board meeting expenses and the filing fees paid to the Registrar of Companies arc allowable deductions under Section 5(j) of the Act.
12. Question No. 2 in R. A. No. 6 of 1987 and question No. 1 in K. A. No. 8 of 1987 relate to the interpretation of the provision of Rule 8G of the Agricultural Income-tax Rules. The contention is that the rehabilitation allowance is allowable only on the quantity of centrifuged rubber latex taken after excluding the process loss and not on the quantity of actual rubber latex extracted from the rubber tree. In this context, it is relevant to consider the provision of Rule 8G of the Rules, which reads thus :
” 8G. In computing the total agricultural income of a person from rubber trees, an amount calculated at the rate of ten rupees for every fifty kilograms of rubber produced from such trees shall be deducted towards rehabilitation or replanting allowance.
Explanation. — For the purpose of this rule, rubber means only the dry rubber. In the case of latex 100 kgs. of latex shall be taken as equivalent to 55 kgs. of rubber.”
13. The rule says that in the case of a person deriving agricultural income, from rubber trees an amount calculated at the rate of Rs. 10 for every fifty kilograms of rubber produced from such trees shall be deducted towards rehabilitation or replanting allowance. The Explanation thereto provides that rubber means only the dry rubber. It further says that in the case of latex, 100 kgs. of latex shall be taken as equivalent to 35 kgs. of rubber. According to the assessee, the rubber produced from such trees stands for the latex extracted from the trees and not the centrifuged latex accounted for by the applicant. But the Tribunal has taken the view that what is material here is the computation of latex as accounted for in the books of the applicant as production and need not give undue importance
to “such trees”.
14. The production according to the appellant is of the centrifuged latex and this denotes the net production as per accounts. The allowance under rehabilitation has to be given out of this production accounted for and not on the basis of the latex extracted from the trees. We are unable to sustain the above finding of the Tribunal. In the case of the applicant, they are also having centrifuged equipment. The rubber, which is extracted from the trees, in order to be preserved for future use, has been put in the process of centrifuging, thereby, the watery contents in the latex are shelled out and the latex is preserved by adding certain chemicals, In the process of centrifuging, the watery content in the latex to a certain percentage is removed and the net rubber obtained is practically dry rubber. In the result, there is process loss. According to the Department, the net quantity, which is obtained after centrifuging alone can be reckoned for the purpose of replantation allowance under Rule 8G of the Rules. In other words, the process loss will have to be excluded. Even on first principles, the process loss can never be treated as income taxable as agricultural income.
15. Even apart from that, the Explanation to the rule according to us makes it clear that what is contemplated by the rules is only rubber produced from the trees and not obtained after undergoing the process of centrifuging. The rule-making authority has taken note of the fact that the latex taken from the trees has a large quantity of watery content. The replantation allowance is intended to be given only based on the rubber content of latex taken from the trees. The stage at which the provisions of Rule 8G are to be applied, according to us, is the stage of rubber immediately after extraction from the trees. It is also worthwhile to note that this is an incentive given to the planters for removing the old unyielding trees and to substitute new plants as a measure for increased agricultural production. Therefore, such a provision must be construed in the same spirit having regard to the purpose for which the deduction is given.
16. On a consideration of the provision of Rule 8G and the mode of processing employed by the applicant, we hold that what is to be reckoned for the purpose of grant of replantation allowance is the quantity of rubber produced from the trees and not the net quantity produced after the centrifuging. We hold that the assessee is entitled to the deduction claimed.
17. Now, coming to the last question regarding the depreciation claimed on the radio kept in the rubber estate as a measure of staff welfare, we have found on a perusal of rule 9 read with the Schedule that such an
item has not been included and, therefore, the depreciation claimed is not allowable under the law.
18. In the result, question No. 1 in R. A. No. 6 of 1987 is answered in the negative, i.e., against the Revenue and in favour of the assessee. Question No. 2 in R. A. No. 6 of 1987 and question No. 1 in R. A. No. 8 of 1987 are answered in the negative, i.e., in favour of the assessee and against the Revenue, Question in R. A. No. 7 of 1987 is answered in the affirmative, i.e., against the assessee and in favour of the Department. Question No. 2 in R. A. No. 8 of 1987 is answered in the affirmative, i.e., against the assessee and in favour of the Department.
19. A copy of the judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Agricultural Income-tax Appellate Tribunal, Additional Bench, Ernakulam, for passing consequential orders.